Off the Reservation: The Big Lies

The world has transitioned from the era of “too big to fail” to “to big to tell the truth.” The bigger the entity, the larger the lie and the more we believe it. The lies that big companies and governments tell are typically shrouded in logic so bent the lie actually sounds plausible. The past couple of weeks have been rife with logic-bending lies espoused by corporate spinsters and government spokespeople.

In the government category, the title of World’s Biggest Prevaricator goes to China for reporting to the International Monetary Fund that its GDP grew 11.9 percent in the first quarter. Things are going swimmingly for the world’s third-largest economy despite rising oil prices, slumping consumer demand, high global unemployment figures and rising concerns over European and American debt levels. Out here on the limb it sure looks like they’re just making it up.

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Here at home, the commercial and investment banking sector has been “surprising analysts” by beating quarterly earnings estimates lately as well. The Dow is up over 11,000 on all of the positive news coming out of Wall Street and bankers are breaking their arms slapping each other on the back. But listen closely to the reports of the banking sector rebound. Most of the reports talk about how the big banks are recording huge profits on their investments, which is covering for the continuing losses on their loan portfolios. Therein lies the lie.

Banks are supposed to make money from their loan portfolios. Investment banks are supposed to make money from underwriting mergers and acquisitions. Neither is happening right now, yet the stock market is soaring once again and banks are posting sizable earnings. So even though business credit is still tight, individuals are defaulting on credit cards and mortgage payments, and there are no significant deals to be underwritten on the horizon, the banks are “surprising analysts.”

So how did we get here? When the government allowed the banks and investment banks to merge, the newly formed financial behemoths poured money indiscriminately into the markets and created investments even they couldn’t understand. (Deep breath, and…) The banks got in deep shit, so the government borrowed money from the taxpayers, gave it to the banks who then invested it in the stock market instead of loaning it to real people, which is artificially pumping up the Dow and allowing banks to reap enormous profits on their investments. On top of the bailout money, the banks are even taking out low-interest loans from the government, then reinvesting the money into government treasuries at a higher rate. Neat trick, but not sustainable.

Now it seems as though the untouchable investment firm Goldman Sachs may have known more about the time bomb that was the derivatives market and made deliberate moves to profit from the scheme while duping investors. Don’t worry, they’re getting ahead of this quite nicely. Despite the SEC’s investigation into the matter, Goldman is blaming their seemingly duplicitous behavior on the actions of one person: Fabrice Tourre, the former wunderkind specialist at Goldman is the current fall guy being spoon-fed to the media and the SEC. What I find interesting about this tactic is Goldman has forever flaunted their philosophy of constant communications at all levels of the firm as the reason they are able to foresee fluctuations in the market. During the financial meltdown they credited their stability (relative to the likes of Lehman and Bear Stearns) to their remarkable communication and management skills. Apparently Tourre wasn’t invited into the daily huddle.

Lastly, filed under “ridiculous” comes the Food and Drug Administration (FDA). The FDA would like to regulate the American salt intake. Pesticides, unregistered chemicals, preservatives, food dyes made from petroleum, bovine growth hormones, steroids and antibiotics are all still OK. But we really must get a hold of this whole salt issue. This may not be as intriguing as watching China lie about its GDP or American banks play three-card-monte with government bailout money, but it’s a wonderful example of spin from one of the finest huckster agencies in the biz.

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